BTP Green: sustainable government bonds

We have often discussed government bonds, i.e. debt securities issued by governments to collect funds for public spending and provide investment opportunities to citizens, businesses and banks. By issuing these securities, the government takes on debt to cover maturing bonds and to fund the public deficit, i.e. the excess of public expenditure (e.g. for health care, education, public transportation, etc.) with respect to revenues (e.g. VAT, income and corporate taxes). In a nutshell, the government is the borrower and subscribers are the lenders.

We have also discussed how the Italian government has diversified the type of government bonds it has issued over time to meet investors' requirements and its own funding requirements. The range of government securities include short-term securities, such a Treasury Bills (Buoni Ordinari del Tesoro  - BOTs), which allow investors to recover the principal at maturity, and longer-term bonds at variable interest rate such as Treasury Certificates (Certificati di Credito del Tesoro - CCTs-eu) and bonds at fixed rate or inflation-indexed interest rate such as Treasury Bonds (Buoni del Tesoro Poliennali - BTPs). In the case of BOTs, the remuneration is the difference between the nominal value and the price paid. For longer-term bonds, instead, investors receive regular coupon payments.

BTPs account for the largest share of government bonds issued to collect funding. In November 2024, nearly 90 per cent of the €2,500 billion worth of government securities were BTPs. Traditional BTPs have recently been supplemented with new types of bonds, each with different characteristics: BTPItalia and BTPꞒI (inflation-indexed), BTP Futura, BTP Valore, and BTP Green.

Specifically, the recently issued BTP Green bonds were designed to finance public expenditure with positive environmental impact. These bonds are sustainable finance tools. The funding collected through their issuance is used by the government to finance projects related to the achievement of the environmental, ecological and social goals outlined by the European Taxonomy of Sustainable Activities and by the Sustainable Development Goals 2023 international framework. These projects are expected to have a positive impact also on economic growth and on employment.

The auctions for these new types of BTPs resumed in early January 2025.

The tax rate for all government bond yields is 12.5 per cent, while for other bonds and financial assets it is 26 per cent. This 'net yield' of government bonds consequently makes them even more attractive to investors.

As of 2025, this tax advantage has become even more appealing: government bonds up to €50,000 are not included in the assets considered in the calculation of the household financial situation index (ISEE), which is used to assess the eligibility of households applying for subsidized public services.